Buyers Need to Plan for UK Interest Rate Rises

Would-be buyers are severely over-estimating their ability to repay their mortgage and could see their finances stretched to breaking point in the event of an interest rate rise, according to a report from data company Experian.
Based on research amongst 1,500 people currently looking to buy, the survey shows purchasers have their sights set on homes worth an average of £235,000 each.

With a typical household income of £50,674, the average homebuyers claim they can afford a mortgage payment of £780 a month. However, based on a 10 per cent deposit, repayments on a £235,000 property now – with a record low base rate – would actually be nearer to £1,300 a month, and potentially more, depending on their credit history and the lenders’ mortgage payment policies.

The firm claims the situation becomes more problematic if, as some analysts predict, the Bank of England increases interest rates in the near future. Experian says mortgage payments could soar to £1,440 – almost double what the average homebuyer claims they can afford – if variable rates increase to 5.5% at the end of a typical two-year fixed deal.

In the case of first-time buyers, they are targeting a home worth an average £193,000 and could see their mortgage payments increase significantly to £1,060 on the same two-year deal. That is 60 per cent more than the typical first-time buyer can afford according to their responses to the Experian survey.